National Bank points out a glaring inconsistency in this week’s Canadian inflation report: Every component rose less than the headline.<\/p>\n
How can the sum be more than the parts? They explain that it’s a quirk from the way Statistics Canada seasonally adjusts the data but that it argues inflation is near-flat rather than above target.<\/p>\n
“As today\u2019s Hot Chart shows, in December, every seasonally adjusted sub\u2011component grew at a
\nslower pace than the overall index\u2014an unprecedented intellectual impossibility,” National Bank writes.<\/p>\n
CPI canada <\/p>\n
Here is the note:<\/p>\n
When the CPI was released on Monday, the market reaction was mixed in the face of puzzling results. On the one hand, headline
\nannual inflation came in well above consensus expectations (2.4% vs. 2.2% expected). On the other hand, the two core inflation
\nmeasures tracked by Bloomberg pointed to more contained price pressures: CPI-Trim matched expectations at 2.7%, while
\nCPI\u2011Median came in two\u2011tenths below consensus (2.5% vs. 2.7%). Part of these discrepancies stem from differences in the
\nseasonal\u2011adjustment process. For CPI\u2011Trim and CPI\u2011Median, Statistics Canada seasonally adjusts each sub\u2011component and then
\naggregates them using the appropriate weights. In contrast, for headline CPI, the agency seasonally adjusts only the main
\ncomponents but does not use these results when constructing the overall index, which is instead seasonally adjusted independently.
\nStatistics Canada justifies this approach by arguing that it filters out seasonal patterns more effectively, but we note that it can also
\ncreate frustrating inconsistencies. As today\u2019s Hot Chart shows, in December, every seasonally adjusted sub\u2011component grew at a
\nslower pace than the overall index\u2014an unprecedented intellectual impossibility. Had Statistics Canada used a bottom\u2011up approach
\nsimilar to that of the U.S. Bureau of Labor Statistics, seasonally adjusted monthly inflation would have been just 0.06%, instead of
\nthe official 0.30%. The last time such a large gap between the two methods appeared was in 2009. While the Bank of Canada
\nofficially prioritizes CPI\u2011Trim and CPI\u2011Median as core measures, its recent communications indicate it is also monitoring inflation
\nexcluding food and energy, as well as CPI excluding the 8 most volatile components. The first two, which rely on the bottom\u2011up
\nmethod, rose only 0.07% on average in December (0.8% annualized), while the latter two, which are seasonally adjusted
\nindependently, grew 0.19% on average (2.3% annualized). At a time when the Bank of Canada is reassessing which core inflation
\nmetrics to emphasize, it would be appropriate for both the Bank and Statistics Canada to align on a consistent seasonal\u2011adjustment
\nmethodology. Maintaining the status quo makes it unnecessarily difficult to assess underlying inflation pressures.<\/p>\n
If Canadian inflation resolves lower, it could weigh on the Canadian dollar as the chance of a December rate hike (currently at just shy of 50%) is priced out.<\/p>\n","protected":false},"excerpt":{"rendered":"National Bank points out a glaring inconsistency in this week’s Canadian inflation report: Every component rose less than…\n","protected":false},"author":2,"featured_media":426623,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[45,49,48,46],"class_list":{"0":"post-426622","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-ca","10":"tag-canada","11":"tag-economy"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/426622","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=426622"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/426622\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/426623"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=426622"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=426622"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=426622"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}